Need advice for PMI removal

16 Replies | San Diego, California

I have been house hacking a 4 bedroom in Clairemont for the past 4/5 years. I recently spoke with my mortgage company and they said if I can get my house re-appraised for $505k+, I can request to have the PMI removed. In SD, that seems like a no-brainer, but because of some. . . unique aspects of my property, I'm having trouble finding good comps and I'm worried about whether the $600-$800 investment I'd need to put into the appraisal will give me the return I want.

My biggest concern is that this house was originally built as a 3/1 with a garage, and a previous owner converted the garage to a bedroom. So now this is a 4/1 without a garage. I originally bought it in the low $400ks, and when I refi'd about a year later it came back around the mid/high $400ks. I replaced all the windows between those appraisals, and since then I've replaced all the pipes in the house, but I'm concerned that won't be enough to push me over the amount I need. I've been assuming the worst and trying to compare vs 3/1s since I'm not seeing 4/1s in my area, but while most of those are in the $600ks there are a few in the $300-400ks, and I can't tell why. Does anyone have any advice on the best comps for my situation/ how to best prepare the property for a new appraisal? If it makes a different I have the option to do a full appraisal or have a realtor come through and do an inspection for a couple hundred dollars less.

Thanks in advance for your insight and advice!

@Kendra Mattson

Ask a realtor (hopefully you have a pre-existing relationship with one) to give you some comps and thoroughly compare them to your house. If they're a good realtor and you trust them, have them tell you what they think you could sell for. This won't help for the bank, but can give you peace of mind to pay that 600-800, or know that you shouldn't.

If you don't have a relationship with a realtor already, just try reaching out to some, especially realtors on BP, they'll likely be wiser and more willing to help.

I'm not well-versed in appraisals but a few things stood out when I read your post: 

I believe you purchased this house 4-5 years ago for and it reappraised a year later in the high $400s.  If its been 3 years since then, you may well naturally be over the $500K mark since the SD property values are growing nicely year-over-year.  I don't think new windows or pipes will make much of a bump.  

AND I'd look into that garage conversion.  if it was done "illegally" then it might be a problem for your appraisal.  Was that garage conversion done with the proper permits and inspections and is it up to code as a livable space?  I'd first confirm that before spending money on an appraisal or else your appraiser might need to include that in his report and it may bring your value down to include the costs to revert to a garage or bring it up to code.  

Here's the thing.  You don't pick the comps.  The appraiser does.  When you're doing your own evaluation you do not want to cherry pick the best comps.  The appraiser will not.  You want to look at all possible comps the appraiser might pick.  If only a few of those support the number you need to hit, you're probably not going to be happy with the appraisal.  If most of them do, you're in good shape.  You can certainly select some comps and hand them to the appraiser.  You can also point out the work you've done.  At the end of the day, though, the appraiser will chose the comps.  

@Kendra Mattson

Do you have assets that you can use to bump you over the 20% equity if the appraisal comes in low so that it does not reflect 20% equity? I would much rather pay into equity than pay towards a PMI that I will never use.

The posts that indicate to get an unofficial appraisal from an RE agent is good advice and RE agent appraisal should be free (or worded better, provided in hopes of attaining good-will so that if you list your RE in the future you would consider listing it with them).  However, realize that, in general, the RE agent appraisal will be based on what they believe the RE can sell for and typically refinance appraisals come in less than purchase appraisals.  I would think you would need a RE agent appraisal that shows 25% equity to have a pretty good chance of getting a refinance appraisal that reflects 20% equity.

Good luck

Originally posted by @Grant Rothenburger :

@Kendra Mattson

Ask a realtor (hopefully you have a pre-existing relationship with one) to give you some comps and thoroughly compare them to your house. If they're a good realtor and you trust them, have them tell you what they think you could sell for. This won't help for the bank, but can give you peace of mind to pay that 600-800, or know that you shouldn't.

If you don't have a relationship with a realtor already, just try reaching out to some, especially realtors on BP, they'll likely be wiser and more willing to help.

That was a great idea, I spoke with one this morning!

Originally posted by @Anthony Ciulla :

I'm not well-versed in appraisals but a few things stood out when I read your post: 

I believe you purchased this house 4-5 years ago for and it reappraised a year later in the high $400s.  If its been 3 years since then, you may well naturally be over the $500K mark since the SD property values are growing nicely year-over-year.  I don't think new windows or pipes will make much of a bump.  

AND I'd look into that garage conversion.  if it was done "illegally" then it might be a problem for your appraisal.  Was that garage conversion done with the proper permits and inspections and is it up to code as a livable space?  I'd first confirm that before spending money on an appraisal or else your appraiser might need to include that in his report and it may bring your value down to include the costs to revert to a garage or bring it up to code.  

 The garage was definitely permitted, I asked about it when I bought the place. The only real downside of the space is the fact that it prevents me having a garage

Originally posted by @Jon Holdman :

Here's the thing.  You don't pick the comps.  The appraiser does.  When you're doing your own evaluation you do not want to cherry pick the best comps.  The appraiser will not.  You want to look at all possible comps the appraiser might pick.  If only a few of those support the number you need to hit, you're probably not going to be happy with the appraisal.  If most of them do, you're in good shape.  You can certainly select some comps and hand them to the appraiser.  You can also point out the work you've done.  At the end of the day, though, the appraiser will chose the comps.  

 I appreciate the reminder, but if anything I've been cherry picking the most low-end potential comps to be as conservative as possible. I figure if I can estimate a "bare minimum" estimate and it's higher than I need, I'll be golden

Originally posted by @Dan Heuschele :

@Kendra Mattson

Do you have assets that you can use to bump you over the 20% equity if the appraisal comes in low so that it does not reflect 20% equity? I would much rather pay into equity than pay towards a PMI that I will never use.

The posts that indicate to get an unofficial appraisal from an RE agent is good advice and RE agent appraisal should be free (or worded better, provided in hopes of attaining good-will so that if you list your RE in the future you would consider listing it with them).  However, realize that, in general, the RE agent appraisal will be based on what they believe the RE can sell for and typically refinance appraisals come in less than purchase appraisals.  I would think you would need a RE agent appraisal that shows 25% equity to have a pretty good chance of getting a refinance appraisal that reflects 20% equity.

Good luck

 I don't have the money to bump up the equity unfortunately.

I spoke with a realtor this morning, and after discussing the comps and lowering the estimates to where I felt comfortable, we landed at an estimate of approx $540k/550k. The mortgage company said I need it to value at at least $504k - do you think that's enough of a buffer to justify spending the money to move forward in the process?

Originally posted by @Kendra Mattson :
Originally posted by @Dan Heuschele:

@Kendra Mattson

Do you have assets that you can use to bump you over the 20% equity if the appraisal comes in low so that it does not reflect 20% equity? I would much rather pay into equity than pay towards a PMI that I will never use.

The posts that indicate to get an unofficial appraisal from an RE agent is good advice and RE agent appraisal should be free (or worded better, provided in hopes of attaining good-will so that if you list your RE in the future you would consider listing it with them).  However, realize that, in general, the RE agent appraisal will be based on what they believe the RE can sell for and typically refinance appraisals come in less than purchase appraisals.  I would think you would need a RE agent appraisal that shows 25% equity to have a pretty good chance of getting a refinance appraisal that reflects 20% equity.

Good luck

 I don't have the money to bump up the equity unfortunately.

I spoke with a realtor this morning, and after discussing the comps and lowering the estimates to where I felt comfortable, we landed at an estimate of approx $540k/550k. The mortgage company said I need it to value at at least $504k - do you think that's enough of a buffer to justify spending the money to move forward in the process?

You never indicated what you owe and therefore it is hard to tell your equity. However, using $540K you would have 25% equity if you owe less than $405K. I would want some margin on my 25% equity would equate to 20% equity on a non-purchase appraisal. So if you owe less than $400K I suspect you have a good chance to get an appraisal that shows you have at least the 20% equity required to ditch the PMI. I do want to add I have seen some refinance appraisal so bad that even 5% equity margin would not suffice. Just over a year ago I appealed a refinance appraisal and got a $60K adjust on a single item (which by the way was still verifiably low).

I do not have much confidence in appraisers but they will typically find comps that work to justify a purchase price.  No such effort for appraisals that are not to justify a purchase (at least none if no target value is specified).

When you request an appraisal you typically can indicate a target value.  The appraiser could cut short the appraisal if it is not appearing to come in at the target value, saving the writing of the appraisal and saving a little of the cost.  If you truly have no money that you can add to bring you to the 20% equity goal I would definitely indicate the appraisal target value.  I probably would indicate the target value regardless.  In addition, I have wondered if the target value is provided if the appraiser is more likely to use comps that can justify the target value.  I think they should not, similar to I think purchase appraisal should value an RE the exact same as refinance appraisals.

Good luck

Originally posted by @Dan Heuschele :
Originally posted by @Kendra Mattson:
Originally posted by @Dan Heuschele:

@Kendra Mattson

Do you have assets that you can use to bump you over the 20% equity if the appraisal comes in low so that it does not reflect 20% equity? I would much rather pay into equity than pay towards a PMI that I will never use.

The posts that indicate to get an unofficial appraisal from an RE agent is good advice and RE agent appraisal should be free (or worded better, provided in hopes of attaining good-will so that if you list your RE in the future you would consider listing it with them).  However, realize that, in general, the RE agent appraisal will be based on what they believe the RE can sell for and typically refinance appraisals come in less than purchase appraisals.  I would think you would need a RE agent appraisal that shows 25% equity to have a pretty good chance of getting a refinance appraisal that reflects 20% equity.

Good luck

 I don't have the money to bump up the equity unfortunately.

I spoke with a realtor this morning, and after discussing the comps and lowering the estimates to where I felt comfortable, we landed at an estimate of approx $540k/550k. The mortgage company said I need it to value at at least $504k - do you think that's enough of a buffer to justify spending the money to move forward in the process?

You never indicated what you owe and therefore it is hard to tell your equity. However, using $540K you would have 25% equity if you owe less than $405K. I would want some margin on my 25% equity would equate to 20% equity on a non-purchase appraisal. So if you owe less than $400K I suspect you have a good chance to get an appraisal that shows you have at least the 20% equity required to ditch the PMI. I do want to add I have seen some refinance appraisal so bad that even 5% equity margin would not suffice. Just over a year ago I appealed a refinance appraisal and got a $60K adjust on a single item (which by the way was still verifiably low).

I do not have much confidence in appraisers but they will typically find comps that work to justify a purchase price.  No such effort for appraisals that are not to justify a purchase (at least none if no target value is specified).

When you request an appraisal you typically can indicate a target value.  The appraiser could cut short the appraisal if it is not appearing to come in at the target value, saving the writing of the appraisal and saving a little of the cost.  If you truly have no money that you can add to bring you to the 20% equity goal I would definitely indicate the appraisal target value.  I probably would indicate the target value regardless.  In addition, I have wondered if the target value is provided if the appraiser is more likely to use comps that can justify the target value.  I think they should not, similar to I think purchase appraisal should value an RE the exact same as refinance appraisals.

Good luck

 Oh I'm sorry, I thought I'd mentioned the balance. It's in the low $380k's and the mortgage company told me the house needs to appraise for ~$405k+ (they have a very specific number down to the dollar). I'm a bit worried because the mortgage company is the one that selects the appraiser/realtor (depending on which "appraisal" option I choose), so even though I pay them, I'd think the appraiser would be motivated to find a way to get the appraisal under the target so the company can keep more money/the appraisal can get more jobs from them. Or am I being too pessimistic?

Originally posted by @Kendra Mattson :
Originally posted by @Dan Heuschele:
Originally posted by @Kendra Mattson:
Originally posted by @Dan Heuschele:

@Kendra Mattson

Do you have assets that you can use to bump you over the 20% equity if the appraisal comes in low so that it does not reflect 20% equity? I would much rather pay into equity than pay towards a PMI that I will never use.

The posts that indicate to get an unofficial appraisal from an RE agent is good advice and RE agent appraisal should be free (or worded better, provided in hopes of attaining good-will so that if you list your RE in the future you would consider listing it with them).  However, realize that, in general, the RE agent appraisal will be based on what they believe the RE can sell for and typically refinance appraisals come in less than purchase appraisals.  I would think you would need a RE agent appraisal that shows 25% equity to have a pretty good chance of getting a refinance appraisal that reflects 20% equity.

Good luck

 I don't have the money to bump up the equity unfortunately.

I spoke with a realtor this morning, and after discussing the comps and lowering the estimates to where I felt comfortable, we landed at an estimate of approx $540k/550k. The mortgage company said I need it to value at at least $504k - do you think that's enough of a buffer to justify spending the money to move forward in the process?

You never indicated what you owe and therefore it is hard to tell your equity. However, using $540K you would have 25% equity if you owe less than $405K. I would want some margin on my 25% equity would equate to 20% equity on a non-purchase appraisal. So if you owe less than $400K I suspect you have a good chance to get an appraisal that shows you have at least the 20% equity required to ditch the PMI. I do want to add I have seen some refinance appraisal so bad that even 5% equity margin would not suffice. Just over a year ago I appealed a refinance appraisal and got a $60K adjust on a single item (which by the way was still verifiably low).

I do not have much confidence in appraisers but they will typically find comps that work to justify a purchase price.  No such effort for appraisals that are not to justify a purchase (at least none if no target value is specified).

When you request an appraisal you typically can indicate a target value.  The appraiser could cut short the appraisal if it is not appearing to come in at the target value, saving the writing of the appraisal and saving a little of the cost.  If you truly have no money that you can add to bring you to the 20% equity goal I would definitely indicate the appraisal target value.  I probably would indicate the target value regardless.  In addition, I have wondered if the target value is provided if the appraiser is more likely to use comps that can justify the target value.  I think they should not, similar to I think purchase appraisal should value an RE the exact same as refinance appraisals.

Good luck

 Oh I'm sorry, I thought I'd mentioned the balance. It's in the low $380k's and the mortgage company told me the house needs to appraise for ~$405k+ (they have a very specific number down to the dollar). I'm a bit worried because the mortgage company is the one that selects the appraiser/realtor (depending on which "appraisal" option I choose), so even though I pay them, I'd think the appraiser would be motivated to find a way to get the appraisal under the target so the company can keep more money/the appraisal can get more jobs from them. Or am I being too pessimistic?

I am used to PMI being removed at 20% equity. The numbers you are providing is not close to a 20% equity; it is not even a 10% equity. Are you sure that you have balance correct (low $380s) and the amount it needs to appraise at ($405K) correct? I have never heard of getting out of PMI for that low of equity position.

I am going to assume a typo on the $405K and that it really is $504K. This would be implying then you need a 25% equity to remove PMI. This is higher than I am used to but believable (I am used to no PMI if I have a 20% equity position). I did the calculations before with the belief that only 20% equity was needed. If I use the same algorithm of adding 5% equity to the minimum (so using 30% equity) you have $540K * 0.7 (i.e. 70%) would mean you would need to owe less than $378K.

I think your numbers place you at risk of not getting the appraisal that would allow removing PMI but you are so close that I probably would proceed with the appraisal and hope that luck was on my side. If given the opportunity to indicate the target appraisal amount, I would definitely list the $504K target. Hopefully if it looks like it will not make the target they will cut the appraisal short saving a little of appraisal cost.

I also know that if I was going to barely miss on the appraisal I would find a way to be able to bring money to add to the equity to bridge the small gap (401K loan, friend/family loan, personal loan, etc.).

Good luck.

Hi Kendra, you may want to run the numbers again by a mortgage broker that you trust. Interest rates were great when you bought the property and I worry that they may have moved up to a point where any savings from removing your PMI would be wiped out. If you want to use FHA to scale up on your next home, that's different (and can be a challenge to make the numbers work here in SD). I would just hate to see you wipe out your equity without seeing a substantial difference in your payment.

@Kendra Mattson based on what the realtor told you it sounds like you have a realistic chance of getting the appraisal you need. and if you do you will save around $100 per month in PMI (just a guess, maybe more)for an investment of $600-800. it depends on your risk tolerance but that is a gamble I would be willing to take.

The appraisal shouldn’t be more than $600. Also, the lender doesn’t select the appraiser, just the Appraisal Management Company (AMC).

If your current balance is in the low $380,000s, it sounds like you have far more than enough equity to get rid of your PMI. 80% of $540k is about $403k, so if you’re under that, you should be fine.

Are they trying to talk you into doing a full refinance or just the appraisal? Depending on your current rate, it might be worth it to look into doing a full refinance, as you could save on the PMI, and potentially on the P&I as well.

A common misconception on removing PMI.

-PMI gets automatically removed when the mtg balance gets below 80% from the Original appraisal/purchase price at purchase/refinance.
-When requesting for PMI to be removed by a Current appraisal, within the first 5 years, the balance has to be below 75% of the current appraisal. After 5 years it’s 80%.

@Dan Heuschele Yes, you're correct, I inverted the numbers. I needed the house to appraise for $504k!

@Charles G. @Matt Mayo My interest rate is pretty good, so I didn't refinance I just had the PMI removed.

@Wayne Brooks my PMI would automatically be removed at 75% of the original appraisal, but I could request it be removed when the balance equals 75% of the appraised value.

Sorry for the delay, but here's my update since the appraisal: I went with the mid-tier appraisal option, needing it to come back valuing at least about $505k (504k and change). It appraised for $560k, so I was able to get the PMI removed! This saves me $177/mo (@Josh Dillingham the appraisal cost about $450, so my ROI was even better than you listed!), so I'm pretty happy. Thank you everyone for the input!